Inter Press ServiceFinancial Crisis – Inter Press Servicehttp://www.ipsnews.net News and Views from the Global SouthWed, 19 Dec 2018 06:39:27 +0000en-UShourly1https://wordpress.org/?v=4.8.8Taking Away the Ladderhttp://www.ipsnews.net/2018/12/taking-away-ladder/?utm_source=rss&utm_medium=rss&utm_campaign=taking-away-ladder http://www.ipsnews.net/2018/12/taking-away-ladder/#respondTue, 18 Dec 2018 13:18:36 +0000Jomo Kwame Sundaram and Anis Chowdhuryhttp://www.ipsnews.net/?p=159312The notion of the BRICS (Brazil, Russia, India, China, and later, South Africa) was concocted by Goldman Sachs’ Jim O’Neill. His 2001 acronym was initially seen as a timely, if not belated acknowledgement of the rise of the South. But if one takes China out of the BRICS, one is left with little more than […]

The notion of the BRICS (Brazil, Russia, India, China, and later, South Africa) was concocted by Goldman Sachs’ Jim O’Neill. His 2001 acronym was initially seen as a timely, if not belated acknowledgement of the rise of the South.

But if one takes China out of the BRICS, one is left with little more than RIBS. While the RIBS have undoubtedly grown in recent decades, their expansion has been quite uneven and much more modest than China’s, while the post-Soviet Russian economy contracted by half during Boris Yeltsin’s first three years of ‘shock therapy’ during 1992-1994.

Jomo Kwame Sundaram

Unsurprisingly, Goldman Sachs quietly shut down its BRICS investment fund in October 2015 after years of losses, marking “the end of an era”, according to Bloomberg.

Growth spurts in South America’s southern cone and sub-Saharan Africa lasted over a decade until the Saudi-induced commodity price collapse from 2014. But the recently celebrated rise of the South and developing country convergence with the OECD has largely remained an East Asian story.

Preventing emulation Increasingly, that has involved China’s and South Korea’s continued ascendance after Japan’s financial ‘big bang’ and ensuing stagnation three decades ago. They have progressed and grown rapidly for extended periods precisely because they have not followed rules set by the advanced economies.

Well-managed SOEs, government procurement practices and effective protection conditional on export promotion accelerated structural transformation. When foreign corporations were allowed to invest, they were typically required to transfer technology to the host economy.

Countries have only progressed by using industrial policy judiciously when sufficient policy space was available, as was the norm in most developed countries. But such successful development practices have been denied to most developing countries in recent decades. Instead, the North now emphasizes the dangers of industrial policy, subsidies, SOEs and technology transfer agreements, to justify precluding their use by others.

Blocking the alternative Instead, corporate-led globalization continues to be sold as the way to develop and progress. Some advocates insist that global value chain participation will provide handsome opportunities for sustained economic development despite the evidence to the contrary.

Major OECD economies appear intent on tightening international rules to further reduce developing countries’ policy space under the pretext of reforming the multilateral trading system in order to save it.

Trump and other challenges to this neoliberal narrative do not offer any better options for the South. Nevertheless, their nationalist and chauvinist rhetoric has undermined the pious claims and very legitimacy of their neoliberal ‘globalist’ rivals on the Right.

Infrastructure finance UNCTAD’s 2018 Trade and Development Report emphasizes the link between infrastructure and industrialization. It argues that successful industrialization since 19th century England has crucially depended on public infrastructure. Infrastructure investment is thus considered crucial for economic growth and structural transformation.

The ascendance of the neoliberal Washington Consensus agenda has not only undermined public interventions generally, but also state revenue and spending in particular, especially in the developing world. But even the World Bank now admits that it had wrongly discouraged infrastructure financing, which it now advocates.

Most Western controlled international financial institutions have recently advocated public-private partnerships to finance, manage and implement infrastructure projects. The presumption is that only the private sector has the expertise and capacity to be efficient and profitable. In practice, states borrowed and bore most of the risk, e.g., of contingent liabilities, while private partners reaped much profit, often with state guaranteed revenues.

Unexpected policy space Infrastructure, including both its construction and financing, has been central, not only to China’s own progress, but also to its international development cooperation. China’s financial redeployment of its massive current account surplus has created an alternative to traditional sources of investment finance, both private and public.

The availability of Chinese infrastructure finance on preferential or concessionary terms has been enthusiastically taken up, not least by countries long starved of investible resources. Not surprisingly, this has resulted in over-investments in some infrastructure, resulting in underutilization and poor returns to investment.

The resulting debt burdens and related problems have been well publicized, if not exaggerated by critics with different motivations. Now threatened by China’s rise, Western governments and Japan have suddenly found additional resources to offer similar concessionary financing for their own infrastructure firms.

Thus, not unlike the US-Soviet Cold War, the perceived new threat from China has created a new bipolar rivalry. That has inadvertently created policy space and concessions reminiscent of the post-Second World War ‘Golden Age’ for Keynesian and development economics.

Over the last two decades since the Global Compact, the United Nations has increasingly embraced the corporate sector, most recently to raise finance needed to achieve the Sustainable Development Goals (SDGs), i.e., for Agenda 2030. But growing big business influence has also compromised analyses, recommendations, policies and programme implementation, undermining the SDGs.

Changing financing arrangements Inadequate funding of the UN and its mandates by member States has required this search for additional finance, initially with philanthropy and ‘corporate social responsibility’ efforts by private business, but increasingly, by viewing profit-seeking investments as somehow contributing to achieve the SDGs.

Jomo Kwame Sundaram

While the global economy grew 47 fold from $1.35 trillion in 1960 to $63 trillion in 2010, the UN organization’s regular core budget fell to 0.0037 per cent of global income. Meanwhile, ‘core’ un-earmarked resources fell from nearly half of all UN financial resources in 1997 to less than a quarter today. A recent UN Secretary-General’s report estimated that over 90 per cent of all UN development system activities in 2015 were funded with non-core, earmarked project resources.

An earlier report found total non-core resources for UN-related activities increased 182 per cent in real terms between 1999 and 2014, mostly going through a growing number of UN ‘vertical’ trust funds, beyond Member States’ control, while core resources increased only 14 per cent.

New development finance discourse Influential quarters claim that in order to achieve Agenda 2030, financing needs have to rise “from billions to trillions” of US dollars, and that this can only be done by engaging the corporate sector.

According to a 2015 World Bank report, while the Millennium Development Goals (MDGs) needed billions in official development assistance, the SDGs require trillions in investments.

Anis Chowdhury

Although most development spending involves national public resources, most Organization for Economic Cooperation and Development (OECD) governments opposed international tax cooperation at the 2015 Addis Ababa third UN Financing for Development conference.

Thus, instead of helping boost national revenue enhancing capacities and capabilities, the Addis Ababa Action Agenda (AAAA) claimed that private capital had “the potential for scaling up to achieve the demands of the Sustainable Development Goals”.

Corporate funding for sustainable development? The three major multilateral agreements of 2015 – the AAAA, the Agenda 2030 for SDGs and the Paris climate agreement – were all premised on private financing while the Agenda 2030 Reflection Group stressed the need to mobilize funding from private business, finance and investment.

Multi-stakeholder partnerships have long been advocated by many OECD governments, UN agencies and former UN Secretary-General Ban Ki-moon. This envisaged big business working with governments in public-private partnerships (PPPs), blended finance and various other novel financing arrangements.

Public-private partnerships The AAAA promoted PPPs and blended finance arrangements, while the Global Infrastructure Forum was set up at Addis to close the ‘infrastructure gap’ in developing countries, estimated by the outcome document at between “$1 trillion to $1.5 trillion” annually.

Thus far, PPPs have been more significant in developed and upper middle-income countries, as low-income countries are rarely able to attract large private investors. Warnings that PPPs and other such modalities, already problematic in OECD member countries, are even less likely to succeed in developing countries, where cost recovery is more difficult, have been largely ignored.

Instead, PPPs have often worsened national budgetary positions in the long-run due to the contingent liabilities governments are required to take on. Consequently, in most cases, governments bear the most risk, subsidize ventures and guarantee revenues to the private partner.

While PPPs have clearly contributed to national financial difficulties, such problems were largely ignored until recently. With changing international relations, they are now being highlighted as leading to national ‘debt bondage’ to China and other non-traditional sources of finance.

Meanwhile, the US and other developed countries have announced major new infrastructure financing initiatives of their own, to draw developing countries from financial reliance on China. This unexpected political rivalry will have mixed consequences for borrowing developing countries.

PPPs involve many unpredictable risks, primarily borne by governments, as well as side and spill-over effects, with the private partners typically setting most terms. Moreover, PPPs in social sectors, such as health and water, are less inclusive, disadvantaging the poor and the less accessible.

Meanwhile concerns have been raised, even by The Economist, about enthusiasm for blended finance as ‘aid’, which typically favours private partners from the donor country. Such aid diversion — from budgetary support, social programmes and essential services — prioritizes private profits, rather than the public interest.

Checks and balances? The UN Global Compact’s 10 principles from the turn of the century remain the main intergovernmental framework governing non-state partnerships, but remains ill-equipped for meaningful accountability, especially as it pre-dates the SDGs, and hence, are inadequate now.

Promoted and often required by OECD governments, PPPs and blended finance have not received enough critical scrutiny in terms of compatibility with UN mandates, while their extra-budgetary funding status has exempted them from rigorous audit, review and impact assessment.

With financing gap concerns accepted as the rationale for multi-stakeholder partnerships, the private sector is increasingly calling the shots, with occasional lip service to civil society engagement merely providing legitimacy, rather than adequate checks and balances.

In criticizing the ‘free trade delusion’, UNCTAD’s 2018 Trade and Development Report proposes an alternative to both reactionary nationalism, recently revived by President Trump, and the corporate cosmopolitanism of neoliberal multilateral discourse in recent decades by revisiting the Havana Charter on its 70th anniversary.

From ITO to WTO Instead, it urges reconsideration of lessons from the struggle from 1947 for the Havana Charter. Although often depicted as the forerunner of the General Agreement on Tariffs and Trade (GATT), the Charter was far more ambitious.

Jomo Kwame Sundaram

Initially agreed to 70 years ago by over 50 countries — mainly from Latin America, as much of the rest of the developing world remained under European colonial rule — it was rejected by the US Congress, with GATT emerging as a poor compromise.

As envisaged at Bretton Woods in 1944, over 50 countries began to create the International Trade Organization (ITO) from 1945 to 1947. In 1947, 56 countries started negotiating the ITO charter in Havana following the 1947 United Nations Conference on Trade and Employment in Havana, eventually signed in 1948.

The idea of a multilateral trade organization to regulate trade — covering areas such as tariff reduction, business cartels, commodity agreements, economic development and foreign direct investment — was first mooted in the US Congress in 1916 by Representative Cordell Hull, later Roosevelt’s first Secretary of State in 1933.

However, the US Congress eventually rejected the Havana Charter, including establishment of the ITO, in 1948 following pressure from corporate lobbies unhappy about concessions to ‘underdeveloped’ countries. Thus, the Bretton Woods’ and Havana Charter’s promise of full employment and domestic industrialization in the post-war international trade order was aborted.

In their place, from 1948 to 1994, the GATT, a provisional compromise, became the main multilateral framework governing international trade, especially in manufactures, the basis for trade rules and regulations for most of the second half of the 20th century.

The Uruguay Round from 1986 to 1994, begun at Punta del Este, was the last round of multilateral trade negotiations under GATT. It ended the postwar trading order governed by GATT, replacing it with the new World Trade Organization (WTO) from 1995.

Developmental fair trade? The UNCTAD report urges revisiting the Havana Charter in light of new challenges in recent decades such as the digital economy, environmental stress and financial vulnerabilities. So, what lessons can we draw from the Havana Charter in trying to reform the multilateral trading order?

Anis Chowdhury

In light of economic transformations over the last seven decades, it is crucial to consider how the Havana Charter tried to create a more developmental and equitable trading system, in contrast with actual changes in the world economy since.

After all, the Charter recognized that a healthy trading system must be based on economies seeking to ensure full employment while distributional issues have to be addressed at both national and international levels.

Profitable, but damaging business practices — by large international, multinational or transnational firms, abusing the international trading system — also need to be addressed.

The Charter recognized the crucial need for industrialization in developing countries as an essential part of a healthy trading system and multilateral world order, and sought to ensure that international trade rules would enable industrial policy.

The GATT compromise exceptionally allowed some such features in post-war trade rules, but even these were largely eliminated by the neoliberal Uruguay Round, as concerns about unemployment, decent work and deindustrialization were ignored.

Paths not taken The evolution of the international trading system has been largely forgotten. Recent and current tensions in global trade are largely seen as threatening to the post-Second World War (WW2) international economic order first negotiated in the late 1940s and revised ever since.

But the international order of the post-WW2 period ended in the 1970s, as policymakers in the major developed economies embraced the counter-revolutionary neoliberal reforms of Thatcherism and Reaganism against Keynesian and development economics after Nixon unilaterally destroyed the Bretton Woods monetary arrangements.

Besides international trade liberalization as an end in itself, financial liberalization and globalization were facilitated as financial markets were deregulated, not only within national economies, but also across international borders.

Industrial policy, public enterprise and mixed economies were purged by the new neoliberal fundamentalists as the very idea of public intervention for healthy, equitable and balanced development was discredited by the counter-revolution against economic progress for all.

With multilateralism and the Doha Development Round under assault, retrieving relevant lessons from the Havana Charter after seven decades can be crucial in steering the world between the devil of reactionary nationalist ‘sovereigntism’ and the deep blue sea of neoliberal corporate cosmopolitanism or ‘globalism’.

]]>http://www.ipsnews.net/2018/12/havana-charters-progressive-trade-vision-subverted/feed/0Multilateralism Undermined by Globalization’s Discontentshttp://www.ipsnews.net/2018/11/multilateralism-undermined-globalizations-discontents/?utm_source=rss&utm_medium=rss&utm_campaign=multilateralism-undermined-globalizations-discontents http://www.ipsnews.net/2018/11/multilateralism-undermined-globalizations-discontents/#commentsWed, 28 Nov 2018 06:17:05 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=158915On 24 October 1945, the world’s most inclusive multilateral institution, the United Nations, was born to “save succeeding generations from the scourge of war, … reaffirm faith in fundamental human rights, … establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, and […]

On 24 October 1945, the world’s most inclusive multilateral institution, the United Nations, was born to “save succeeding generations from the scourge of war, … reaffirm faith in fundamental human rights, … establish conditions under which justice and respect for the obligations arising from treaties and other sources of international law can be maintained, and to promote social progress and better standards of life in larger freedom” (UN Charter: Preamble).

Thus, one major purpose of the UN is to foster international cooperation to resolve the world’s socio-economic problems and to promote human rights and fundamental freedoms (UN Charter: Article 1.3).

Anis Chowdhury

Hence, all Members are obliged to “refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state” (Article 1.4), and to give the UN “every assistance in any action it takes in accordance with [its] Charter” (Article 1.5).

For many, however, the world today is increasingly at odds with the ideals of the UN Charter. Wars and conflicts are causing unprecedented humanitarian crises, worsened by rising intolerance and xenophobia.

Important international organizations and treaties are being threatened by unilateral withdrawals, non-payment of dues, virtual vetoes and threats of worse. Meanwhile, bilateral and plurilateral trade and other agreements are undermining crucial features of the post-Second World War order.

Little incentive to cooperate Before the opening of the General Debate of the UN General Assembly, Secretary-General António Guterres warned that “multilateralism is under attack from many different directions precisely when we need it most.”

Pundits have identified many causes such as the proliferation of multilateral institutions, often with overlapping mandates, undermining one another, sometimes inadvertently, but nonetheless effectively. Institutional resistance to reform has also frequently made them unfit for purpose.

While design of the post-war order at Bretton Woods, Yalta and San Francisco envisaged a post-colonial multilateral order, it was not long before new arrangements for hegemony, if not outright dominance prevailed as the old imperial powers reluctantly retreated from their colonies, often with privileges largely intact.

Jomo Kwame Sundaram

Without Roosevelt, the World War Two Allies were soon engaged in a bipolar ‘Cold War’, demanding the loyalty of others. By the 1960s, many ‘emerging countries’ sought national political and policy space through ‘non-alignment’ and the emerging bloc of developing countries called the Group of 77 (G77).

Profitable globalization By the 1980s, the Thatcher-Reagan-led ‘neoliberal’ counter-revolution against Keynesian and development economics seized upon Soviet economic decline under Brezhnev to strengthen private corporate interests, by extending property rights, privatization, liberalization and globalization.

The new patterns of international economic specialization saw significant industrialization and growth, especially where governments pro-actively made the most of the new opportunities available to them, especially in East and South Asia.

Much of the new prosperity in the North was neither inclusive nor shared, resulting in new economic polarization unseen since the 1920s. Much of this was easily blamed on the ‘other’, with immigrants and cheap foreign imports blamed for stealing good jobs.

Meanwhile, a new generation of social democrats in the West embraced much of the neo-liberal agenda, even rejecting Keynesian counter-cyclical fiscal policies after failing to check the libertarian revolt against progressive taxation.

Successful in achieving their political ambitions, the ‘new social democrats’ offered a culturally alien, new ‘identity politics’ as ideological surrogate. This, in turn, later served to fuel the reactionary ascendance of ‘ethno-populism’ by the ‘new right’.

Thus, neoliberalism’s triumph – with enhanced corporate prerogatives, privatization, economic liberalization and globalization, in the embrace of Western social democratic leaders’ abandonment of their own purported class base – led to corporatist populist reactions, reminiscent of earlier fascist resurgences.

International solidarity undermined Narrow reactionary ethno-nationalisms are rarely conducive to international cooperation, often depicted as a variant of their ostensible enemy – (neoliberal) globalism! This has not only weakened international solidarity, but also undermined multilateral engagement, let alone cooperation.

Roosevelt’s protracted leadership of the ascendant post-WW2 US and recognition of the urgent need to transcend the limited imperialist multilateralism of the League of Nations were crucial. Thus, despite its limitations, the UN system met the need for an inclusive post-colonial multilateralism after WW2.

Ironically, the ongoing undermining of multilateralism, especially with the rise of US ‘sovereigntism’ after the end of the Cold War, has gained new momentum as backlashes to globalization and its pitfalls have spread from developing countries to transition economies and declining industrial powers.

]]>http://www.ipsnews.net/2018/11/multilateralism-undermined-globalizations-discontents/feed/1African Nations Show Rare Transparency in Military Spendinghttp://www.ipsnews.net/2018/11/african-nations-show-rare-transparency-military-spending/?utm_source=rss&utm_medium=rss&utm_campaign=african-nations-show-rare-transparency-military-spending http://www.ipsnews.net/2018/11/african-nations-show-rare-transparency-military-spending/#respondMon, 26 Nov 2018 12:06:31 +0000Thalif Deenhttp://www.ipsnews.net/?p=158867When the United Nations began publishing annual reports on arms expenditures, starting in 1981, not all 193 member states voluntarily participated in the exercise in transparency– primarily because most governments are secretive about their defense spending and their weapons purchases. The original goal of the reports, according to the UN Office for Disarmament Affairs (UNODA), […]

When the United Nations began publishing annual reports on arms expenditures, starting in 1981, not all 193 member states voluntarily participated in the exercise in transparency– primarily because most governments are secretive about their defense spending and their weapons purchases.

The original goal of the reports, according to the UN Office for Disarmament Affairs (UNODA), was to facilitate reductions in military budgets, particularly in the context of the trillions of dollars in annual global military spending– reaching a staggering $1.7 trillion in 2017.

The United Nations has vociferously – but unsuccessfully – long campaigned for a significant diversion of military budgets into development aid, including a much-needed $100 billion by 2020 to curb carbon emissions and weather the impact of climate change.

According to UNODA, a total of 126 UN Member States have submitted reports to the UN Secretary-General regularly or at least once.

But only a minority of States report in any given year, while a small number of States consistently report every year. In addition, there are significant disparities in reporting by States among different regions.

Transparency in armaments, according to the UN, contributes to international security by fostering trust and confidence among countries.

And in a rare exercise in transparency, countries in sub-Saharan Africa have consistently reported on their military expenditures, according to a new report released last week by the Stockholm International Peace Research Institute (SIPRI)

Asked to single out the most transparent, and the least transparent, of the African countries, Dr Nan Tian, Researcher at SIPRI’s Arms and Military Expenditure Programme, told IPS that based on SIPRI’s analysis, countries with relatively high transparency include Burkina Faso, Chad, Democratic Republic of Congo (DRC), Cote d’Ivoire, Ghana, Namibia, South Africa and Tanzania, among others.

He said the least transparent include Eritrea, Ethiopia, Malawi, Lesotho, Gambia, Equatorial Guinea and Djibouti. According to UNODA, information on military matters, particularly transparency on military expenditures, helps build confidence between countries.

At the same time, it can also help governments determine whether excessive or destabilizing accumulations of arms are taking place.

The new SIPRI report says transparency in military spending in sub-Saharan Africa is higher than expected.

Between 2012 and 2017, 45 of the 47 states surveyed published at least one official budget document in a timely manner online.

‘Contrary to common belief, countries in sub-Saharan Africa show a high degree of transparency in how they spend money on their military,’ says Dr Tian.

He says citizens everywhere should know where and how public money is spent. It is encouraging that national reporting in sub-Saharan Africa has

In a joint statement Dr Tian and Pieter Wezeman, Senior Researcher in SIPRI’s Arms and Military Expenditure Programme, told IPS global participation in reporting of military expenditure to the UN, on the other hand, has decreased to a very low level.

“The latest information we have is that in 2018, only 32 countries submitted data about their military spending in 2017.”

In the period 2008–17, only five states in sub-Saharan Africa reported at least once, and no reports were submitted during the years 2015–17.

“2018 has not yet ended but, as far as we know, no African country reported this year.”

Still, SIPRI data shows that governments in 45 countries in the region made either military expenditure budgets or figures on actual military expenditure publicly available in the period 2012–16, said Dr Tian and Wezeman.

These states could have opted to simply use this information in a submission to the UN using either their own format or the simplified form.

Dr. Natalie J. Goldring, a Senior Fellow with the Security Studies Program in the Edmund A. Walsh School of Foreign Service at Georgetown University, told IPS the latest SIPRI report contains good news for analysts and advocates concerned about global transparency on military expenditures.

She said SIPRI has documented the publication of military spending reports in 45 of 47 countries in sub-Saharan Africa for at least one year between 2012 and 2017.

The United Nations has a long-standing instrument that is intended to collect information on UN members’ military expenditures.

Unfortunately, participation in that instrument has been low in recent years. And the vast majority of the countries that reported on their 2017 budgets in 2018 are countries in Europe.

The other regions of the world are vastly underrepresented.

“It’s ironic that so many countries in Africa are publishing their individual reports on military spending, but are choosing not to report the same data to the United Nations,“ said Dr Goldring, who also represents the Acronym Institute for Disarmament Diplomacy at the United Nations, on conventional weapons and arms trade issues.

She pointed out that UN Member States regularly describe “reporting fatigue,” with numerous – and sometimes overlapping – reporting requirements imposing burdens on agencies and departments that are chronically understaffed.

“One possible solution would be to try to reduce the number of reports and to create standard forms to gather data that would otherwise be submitted in multiple reports.”

“Although the inclusion of virtually all sub-Saharan countries in the SIPRI report is good news, knowing the monetary value of military budgets only gets you so far. Military budget numbers are often not good proxies for countries’ military power”.

For example, the horrendous destructive power of the small arms and light weapons that are being used in conflicts all over the world is completely out of proportion to their relatively modest cost, she added.

Asked how most Asian, Latin American and Middle Eastern countries compare with transparency by African countries, Dr Tian and Wezeman told IPS they do not make any comparisons in the report, nor an extensive assessment of other regions in the past few years.

“Still based on SIPRI’s continuous monitoring of military spending in the world we can sketch the situation in other regions.”

Military spending transparency in Latin America is relatively high, for all countries useful and often detailed information is available, they said.

In Asia, transparency varies a lot. In India, Pakistan, Bangladesh, the Philippines, Malaysia, Kazakhstan and Indonesia, very useful military spending data is published by the governments.

However in Vietnam, Cambodia, Laos, North Korea, Uzbekistan and Turkmenistan, military spending is kept secret, while military spending data in China is incomplete.

Also in the Middle East transparency varies highly.

Turkey, Israel, Iran and Jordan publish quite detailed information, but public reporting on military spending in Saudi Arabia, Morocco, Egypt and Iraq is low to minimal, “whereas we have not found any useful military spending data for the United Arab Emirates (UAE) and Qatar.”

]]>http://www.ipsnews.net/2018/11/african-nations-show-rare-transparency-military-spending/feed/0Amidst Rising Hunger, BCFN Forum to Promote Food Sustainabilityhttp://www.ipsnews.net/2018/11/amidst-rising-hunger-bcfn-forum-promote-food-sustainability/?utm_source=rss&utm_medium=rss&utm_campaign=amidst-rising-hunger-bcfn-forum-promote-food-sustainability http://www.ipsnews.net/2018/11/amidst-rising-hunger-bcfn-forum-promote-food-sustainability/#respondMon, 26 Nov 2018 07:33:30 +0000Stella Paulhttp://www.ipsnews.net/?p=158858As 2018 nears its end, the world faces a new wave of food insecurity with the level of hunger being on the rise globally. A record 821 million people are facing chronic food deprivation – a sharp rise from 804 million figure in 2016 – said a report published by the UNFAO earlier this year. […]

An organic farmer in his sustainable farm in Paro, Bhutan. Credit: Stella Paul/IPS

By Stella PaulMILAN, Italy, Nov 26 2018 (IPS)

As 2018 nears its end, the world faces a new wave of food insecurity with the level of hunger being on the rise globally. A record 821 million people are facing chronic food deprivation – a sharp rise from 804 million figure in 2016 – said a report published by the UNFAO earlier this year. Along with rising hunger, food security has declined across Africa and South America while undernourishment is on the rise again in Asia, said the report which attributed the changing scenario to climate-related changes, adverse economic conditions and conflict. With this alarming picture as the backdrop, the 9th Barilla Center for Food and Nutrition (BCFN) International Forum on Food and Nutrition in Milan is all set to take off on November 27.

A Diverse, Promising Platform

Founded with the aim to “provide an open space for interdisciplinary discussion on issues of nutrition and sustainability,” the annual 2 day BCFN forum has always drawn food and nutrition experts, policy makers, media leaders and civil society. With a long line of speakers from governments, academia, business, research and media organizations, this year’s forum also appears promising where participants and followers can expect rich and diverse opinions, stories, and ideas, especially on sustainable food –which is the core focus area at this year’s forum. There is also a long list of topics being discussed that include hunger and obesity, optimum use of natural resources, reducing food waste, promoting sustainable diets, and the effects of climate change.

SDGs, Collaborative Food Action in Focus

The 2-day event is co-hosted by BCFN, in joint collaboration with the United Nations Sustainable Development Solutions Network (UN SDSN), and is designed to have three sessions. The first session focused on understanding the three paradoxes of food: An obese planet dying of hunger; competition for natural resource among people, animals, and cars; and food loss and food waste. Session two is focused on the role of agriculture, nutrition, and food in migration and development while the third and fine session focuses on solutions towards a sustainable urban food system.

A prawn farmer selling his produce in Can Tho of Vietnam. Credit: Stella Paul/IPS

The Forum also will present the publication Food and Cities, a joint initiative between BCFN and the Milan Urban Food Policy Pact (MUFPP) which highlights effective food policies of various European Cities.

It is estimated that over 50 per cent of the world’s population today live in cities – a number expected to rise to 80% by 2050. If such trend continues undeterred, current food systems cannot meet the growing demand with sustainable development, especially since high levels of greenhouse gas emissions and global warming directly affects food production. Also, rising demand for food will require more water and land which will be in shortage due to raising of animals, grazing and cultivation of fodder.

The MUFPP which has 180 signatory cities worldwide, is an excellent example of collaborative action taken by cities to deal with the food security issues of tomorrow. The BCFN will, therefore, be a window to this global food action.

Food Sustainability and Role of Media

A salient feature of the forum has been its strong focus on the role of media in highlighting food and nutrition issues and also helping create a model for food sustainability, especially in accordance with the UN Sustainable Development Goals. For the second year on, the forum is hosting the Food Sustainability Media Award – an international contest that recognizes journalistic excellence in reporting on food from a different perspective and turning the spotlight on food sustainability. Apart from this, the pool of speakers also has a number of leading voices from media who will share their experiences of covering food and nutrition issues, throwing light on the biggest challenges faced by the global communities as well as the solutions that are working on the ground.

]]>http://www.ipsnews.net/2018/11/amidst-rising-hunger-bcfn-forum-promote-food-sustainability/feed/0Inequality undermines democracyhttp://www.ipsnews.net/2018/11/inequality-undermines-democracy/?utm_source=rss&utm_medium=rss&utm_campaign=inequality-undermines-democracy http://www.ipsnews.net/2018/11/inequality-undermines-democracy/#commentsWed, 21 Nov 2018 15:31:16 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=158785Economic inequality – involving both income and wealth concentration – has risen in nearly all world regions since the 1980s. Gross economic inequalities moderated for much of the 20th century, especially after World War Two until the 1970s, but has now reached levels never before seen in human history. No more inclusive prosperity The World […]

Economic inequality – involving both income and wealth concentration – has risen in nearly all world regions since the 1980s. Gross economic inequalities moderated for much of the 20th century, especially after World War Two until the 1970s, but has now reached levels never before seen in human history.

No more inclusive prosperity The World Inequality Report 2018 found that the richest 1% of humanity captured 27% of world income between 1980 and 2016. By contrast, the bottom half got only 12%. In Europe, the top one percent got 18%, while the bottom half got 14%.

OXFAM’s Reward Work, Not Wealth reported that 82% of the wealth created in 2016 went to the richest 1% of the world population, while the 3.7 billion people in the poorer half of humanity got next to nothing.

2016 saw the biggest increase in billionaires in history, with a new one every two days. Billionaire wealth increased by $762 billion between March 2016 and March 2017, with OXFAM noting, “This huge increase could have ended global extreme poverty seven times over”.

The latest World Inequality Report warns, “if rising inequality is not properly monitored and addressed, it can lead to various sorts of political, economic, and social catastrophes”.

Growing inequality undermining progress Alexis de Tocqueville believed that democracies with severe economic inequality are unstable as it is difficult for democratic institutions to function properly in societies sharply divided by income and wealth, especially if little is done to redress the situation, or if it worsens.

De Tocqueville also maintained that there cannot be real political equality without some measure of economic equality. Poor citizens would not enjoy the same access to political and policy influence as the wealthy enjoy much more influence.

For Amartya Sen, the poor’s ‘substantive freedom’ or ‘capability’ to pursue goals and objectives is circumscribed. Those with more power not only block progressive redistribution, but also shape rules and policy to their own advantage.

For Robert Putnam, economic inequality also impacts civic norms, such as ‘trust’, critical for political legitimacy. Growing inequality exacerbates the sense of unfairness about a status quo run by and for wealthy plutocrats.

Exclusion and deprivation exacerbate alienation, causing greater abandonment of prevailing social norms. Meanwhile, the privileged indignantly see others as undeserving of ‘social transfers’.

Populism threatens multilateralism Thus, de Tocqueville was concerned that growing inequality would gradually erode the ‘quality’ of democracy, even in high-income societies. The rise of ‘plutocratic populism’ has contributed to the latest identity politics in the US and Europe.

Public discourses and the media have blamed the ‘other’ – immigrants and the culturally different – for growing social ills. Thus, plutocrats often succeed in satisfying ‘their people’ with privileges and ‘rights’ in contemporary modes of ‘divide and rule’.

With the media, they often obscure plutocracy’s rule, sometimes even justifying its worst features, e.g., legitimizing high executive remuneration as ‘just rewards’ as tycoons secure generous tax breaks and investment incentives, at the expense of social spending and public services for all.

In today’s ‘winner-take-all’ economy, those on top successfully lobby for and secure lower taxes. Nonetheless, they indignantly denounce budget deficits as irresponsible and inflationary, threatening the value of all financial assets.

America divided In the United States, the income share of the top 1% is now at its highest level since the Gilded Age, on the eve of the Great Depression. Meanwhile, the bottom half of Americans has captured only 3% of total growth since 1980. Disparities are reaching levels never before seen in the modern period.

Thus, around 2013, the top 0.01%, or 14,000 American families, owned 22.2% of US wealth, while the bottom 90% – over 133 million families – owned a meagre 4%! The richest 1% tripled their share of US income within a generation, with 95% of income gains since the 2008-2009 financial crisis going to the top 1%!

Meanwhile, legislative and other reforms as well as judicial appointments have stacked the legal system even more heavily against those with little power or influence. A recent survey found more than 70% of low-income American households had been involved in civil legal disputes in the previous year, such as eviction and employment law cases, with more than 80% lacking effective legal representation.

Lack of attention to those down and out has worsened the sense of abandonment and exclusion. Many Americans, especially in depressed regions, have become disillusioned and alienated, but also more susceptible to chauvinist politicians promising protection against ‘the other’, imports and immigrants.

]]>http://www.ipsnews.net/2018/11/inequality-undermines-democracy/feed/2Trade War Due To Deeper Malaisehttp://www.ipsnews.net/2018/10/trade-war-due-deeper-malaise/?utm_source=rss&utm_medium=rss&utm_campaign=trade-war-due-deeper-malaise http://www.ipsnews.net/2018/10/trade-war-due-deeper-malaise/#commentsTue, 02 Oct 2018 13:48:29 +0000Jomo Kwame Sundaram and Anis Chowdhuryhttp://www.ipsnews.net/?p=157923The world economy remains tepid and unstable a decade after the 2008 financial crisis, while growing trade conflicts are symptoms of deeper economic malaise, according to a new United Nations publication. While the global economy has picked up since early 2017, growth remains hesitant, with many countries operating below potential. The year ahead is unlikely […]

The world economy remains tepid and unstable a decade after the 2008 financial crisis, while growing trade conflicts are symptoms of deeper economic malaise, according to a new United Nations publication.

While the global economy has picked up since early 2017, growth remains hesitant, with many countries operating below potential. The year ahead is unlikely to see much improvement as the world economy is under stress again, with rising tariffs and volatile financial flows.

Underlying such threats to global economic stability is the failure to address fundamental weaknesses in global economic governance which have been fostering global economic inequities and imbalances.

The report examines how economic power is increasingly concentrated in fewer big international firms, its impact on the ability of developing countries to benefit from the international trading system, and the distribution of gains from new digital technologies.

TDR 2018 notes that since 2008, many advanced countries have shifted from domestic to external sources of growth, with the eurozone becoming a trade surplus region.

While advanced economies have not done enough to rebalance the global economy, ‘normalizing’ unconventional monetary policies could rile capital and currency markets, with potentially vicious economic consequences in the more vulnerable emerging market economies.

Among countries relying on domestic demand, too many depend on higher debt and asset price bubbles, instead of raising wages. Meanwhile, growth is constrained by the omnipresent threat of financial instability, although the bigger emerging market economies are doing better this year, and commodity exporters can benefit while prices are high.

Anis Chowdhury

While Brazil, India, China and South Africa depend heavily on domestic demand, many other developing economies do not. With downside, including financial risks rising in several countries, TDR 2018 warns of gathering economic storm clouds.

The current $250 trillion debt stock – 50 per cent higher than a decade ago – is thrice the size of annual global output. Private, particularly corporate debt has been mainly behind this borrowing spree, but without financing corresponding real investments. Meanwhile, growing indebtedness has increased inequality through the financial markets.

Horns of trade dilemma International trade remains dominated by large firms through their control of global value chains, with the top one per cent of each country’s exporting firms accounting for more than half its exports.

The spread of such chains accelerated trade growth from the end of the 20th century until the 2008 financial crisis, with some developing countries growing fastest. But the ratio of trade to growth has been rising, with much more trade associated with the same output increase. This has mainly benefited large firms by increasing market concentration and intellectual property.

Meanwhile, except for China, manufacturing’s share of value added has generally declined as the shares of pre- and post-production activities have risen. Such rents captured at both ends of the value chain have affected income distribution more generally.

Recent tariff increases are disrupting a trading system increasingly involving such value chains, although trade growth in 2018 is likely to reach 2017 levels. However, heightened uncertainty and reduced investment could have more damaging medium term consequences, particularly threatening for countries already facing financial distress.

Distributional consequences By changing the profitability of firms in tradeable sectors, tariff hikes have distributional consequences affecting demand. After decades of disruptive trade liberalization, tariff war will not restore the status quo ante, but could cause massive disruptions.

Instead, UNCTAD argues that through global policy coordination, governments could avert continuing deterioration of income distribution and employment, at the root of recent economic crises. Hence, while globalization has rarely produced ‘win-win’ outcomes, neither trade nationalism nor further trade liberalization are appropriate.

After all, free trade has limited policy space for developing countries and reduced protections for working people and small businesses, while further enriching big firms.

TDR 2018 deems trade wars symptomatic of the deteriorating economic system and multilateral architecture, due to corporate political capture and rising inequality, with money used to gain political power and political power used to make money. As inward-looking options do not offer a way forward for most, the challenge is to make multilateralism work for all.

To avoid the errors of the 1930s, UNCTAD urges addressing new challenges while referring to the 1948 Havana Charter, the first multilateral effort to create a managed international trading system.

This must involve trade promotion contributing to both full employment and rising wages, restricting rentier corporate behaviour, while ensuring sufficient policy space to achieve the Sustainable Development Goals.

]]>http://www.ipsnews.net/2018/10/trade-war-due-deeper-malaise/feed/1Venezuela’s Surname Is Diasporahttp://www.ipsnews.net/2018/09/venezuelas-surname-diaspora/?utm_source=rss&utm_medium=rss&utm_campaign=venezuelas-surname-diaspora http://www.ipsnews.net/2018/09/venezuelas-surname-diaspora/#respondFri, 28 Sep 2018 21:49:10 +0000Humberto Marquezhttp://www.ipsnews.net/?p=157885They sell their houses, cars, motorcycles, household goods, clothes and ornaments – if they have any – even at derisory prices, save up a few dollars, take a bus and, in many cases, for the first time ever travel outside their country: they are the migrants who are fleeing Venezuela by the hundreds of thousands. […]

Trade liberalization, a key dimension of recent globalization, has failed to promote broad structural transformation in developing countries and has instead contributed to increased worldwide inequality, a new United Nations report shows.

The UN report also finds that policies that helped China to successfully develop, diversify and upgrade are now being discouraged, if not blocked, by developed countries influenced by transnational corporations threatened by such policies.

Despite long-standing concerns in developing countries about the international trading system, heightened recent anxiety in developed countries has strengthened scepticism about the supposedly shared benefits of trade liberalization.

Jomo Kwame Sundaram

More positive attitudes to trade liberalization will require more than seductive, but also deceptive slogans such as ‘freer trade lifts all boats’. Instead, a new momentum based on a more inclusive and developmental trade agenda is needed, reflecting the raison d’etre of the United Nations Conference on Trade and Development (UNCTAD), the TDR’s author.

Trade-induced structural change? While the growing role of developing countries in international trade has been important for recent globalization, the ‘rise of the Rest’ – mainly developing countries or the ‘South’ – is a mainly East Asian story.

TDR 2018 shows that rapid export growth mainly came from the first-tier East Asian newly industrialized economies, and then China. Meanwhile, developed countries’ share of world exports declined, from nearly three-quarters of gross merchandise exports in 1986, to just over half in 2016. Export shares in most other developing countries remained constant or declined, except when commodity prices rose.

China stands out among the BRICS, whose share of world income soared from 5.4 per cent to 22.2 per cent during this period. Without China, the share of Russia, India, Brazil and South Africa in global output only rose from 3.7 per cent in 1990 to 7.4 per cent in 2016.

Anis Chowdhury

In 2016, East Asia accounted for about 70 per cent of all developing countries’ manufactured exports. Only East Asian developing economies have headquarters of leading transnational corporations. Of the world’s top 2,000 transnational corporations, transnational corporations’ share of profits rose from 7 per cent in 1995 to over 26 per cent in 2015.

More exports, less diversity As developing countries increasingly rely on global market access, their exports have generally become less diverse. TDR 2018 associates these trends with spreading global value chains and the challenges of ‘catching up’ without a strong ‘developmental state’.

In fact, such value chains have long characterized commodity trade. Since 1995, 18 of the 27 developing countries with the relevant data had increased shares of extractive industries in export value added.

But, except for China, spreading global value chains have seen declining shares of domestic value added in gross exports. Except in East Asia, there is little evidence of ‘upgrading’ in these chains. While growing demand from China has stimulated growth in many developing countries in recent decades, it has not enhanced or diversified their export profiles.

Unfair trade Size matters for corporate behaviour, both at home and abroad. Trade has been dominated by big firms, especially since the mid-1990s. Among exporting firms, the top percentile accounted for 60 per cent of exports, while an average of ten firms accounted for 40 per cent of exports.

Unsurprisingly, new entrants and smaller exporters have low survival rates, with three quarters giving up exports after two years, with developing country firms faring worse than their developed country counterparts.

Besides ‘hollowing out’ due to ‘offshoring’ from advanced economies, the income shares of low and medium skilled production workers in most developing country value chains besides China have been declining due to fabrication’s falling share of value added.

Size also matters for profitability, with the rapid profit growth of the top 2,000 firms depressing global labour income share. Worsening inequality attributed to trade is due to more profits from ‘intangible assets’, higher headquarters’ incomes, and cutting production costs.

Many big international firms engage in trade resulting in greater income flows to low-tax or no-tax jurisdictions. Payments for intellectual property have risen sharply in the last two decades in countries such as Ireland, Luxembourg, the Netherlands and Switzerland. Transnational corporate incomes in such locations have been rising far more than where their products are made or sold.

Policy space TDR 2018 concludes that the problem is not with trade per se, but rather with its management and regulation. Rhetoric about ‘win-win’ solutions typically obscures how benefits can be more broadly shared.

UNCTAD argues that South-South trade agreements are less susceptible to such abuses of corporate power and influence. In contrast, policy space has been increasingly constrained by typical free trade agreements, reflecting powerful corporate influences via opaque negotiations.

]]>http://www.ipsnews.net/2018/09/new-trade-realities-cause-concern/feed/1Another global financial crisis for developing countries?http://www.ipsnews.net/2018/09/another-global-financial-crisis-developing-countries/?utm_source=rss&utm_medium=rss&utm_campaign=another-global-financial-crisis-developing-countries http://www.ipsnews.net/2018/09/another-global-financial-crisis-developing-countries/#respondTue, 18 Sep 2018 09:05:35 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=157656George Soros, Bill Gates and other pundits have been predicting another financial crisis. In their recent book, Revolution Required: The Ticking Bombs of the G7 Model, Peter Dittus and Herve Hamoun, former senior officials of the Bank of International Settlements, warned of ‘ticking time bombs’ in the global financial system waiting to explode, mainly due […]

George Soros, Bill Gates and other pundits have been predicting another financial crisis. In their recent book, Revolution Required: The Ticking Bombs of the G7 Model, Peter Dittus and Herve Hamoun, former senior officials of the Bank of International Settlements, warned of ‘ticking time bombs’ in the global financial system waiting to explode, mainly due to the policies of major developed countries.

Anis Chowdhury

Recent events vindicate such fears. Many emerging market currencies have come under considerable pressure, with the Indonesian rupiah, Indian rupee and South African rand all struggling since early this year. Brazil’s real fell sharply in June, and Argentina has failed to stabilize its peso despite seeking IMF aid. As Turkey struggles to stabilize its lira, many European banks’ exposure has heightened fears of another global financial crisis.

Why the vulnerability? Some fundamental weaknesses are at the core of this vulnerability. These include the international financial ‘non-system’ since the collapse of the Bretton Woods system in 1971, and continuing to use the US dollar as the main international reserve currency.

This burdens deficit countries vis-à-vis surplus countries and ensures near-universal vulnerability to US monetary policy. Thus, most countries accumulate dollars as a precaution, i.e., for ‘protection’, eschewing other options, such as investing in socially desirable projects.

Policy makers not only failed to address these weaknesses following the 2008-2009 global financial crisis (GFC), but also compounded other problems. Having eschewed stronger, more sustained fiscal policy interventions, monetary policy virtually became the sole policy instrument. Major central banks, led by the US Federal Reserve, embarked on ‘unconventional monetary policies’, pushing real interest rates down, even into negative territory.

Jomo Kwame Sundaram

Emerging and developing economies (EDEs) offering higher returns temporarily experienced large short-term capital inflows. The external debt of emerging market economies has grown to over $40 trillion since the GFC. The combined debt of 26 large emerging markets rose from 148% of gross domestic product (GDP) at the end of 2008 to 211% in September 2017, according to the Institute of International Finance (IIF).

Easy money raised household and corporate debt, fuelling property and financial asset price bubbles. According to the International Monetary Fund (IMF) April 2018 Fiscal Monitor, global debt peaked at $164 trillion in 2016, or 225% of global GDP, compared to 125% before the GFC. The IIF reported that global debt rose to over $247 trillion in early 2018, i.e., equivalent to 318% of GDP.

Rising debt levels pose serious downside risks for the global economy. With easy money coming to an end, as the Fed continues to ‘normalize’ monetary policy by raising the policy interest rate, capital flight to the US is undermining emerging market currencies. When debt defaults increase with interest rates while income growth remains subdued, the world becomes more vulnerable to financial crisis.

Diminished capacities Both developed and developing countries have less policy space than during the GFC. Most governments are saddled with more debt following massive financial bail outs followed by abandonment of efforts to sustain robust recovery.

According to the IMF’s April 2018 Fiscal Monitor, average public debt of advanced economies was 105% of GDP in 2017, constraining fiscal capacity to respond to crisis. Meanwhile, monetary policy options are exhausted after a decade of ‘unconventional’ monetary policies.

General government debt-to-GDP ratios in emerging market and middle-income economies almost reached 50% in 2017 — a level only seen during the 1980s’ debt crisis. The 2017 ratio exceeded 40% in low-income developing countries, climbing by more than ten percentage points since 2012. Playing With Fire by Yilmaz Akyuz, former South Centre chief economist, has highlighted the self-inflicted vulnerabilities of developing countries. Public debt-GDP ratios in EDEs are likely to rise due to falling commodity prices and stagnant global trade, while they have almost no monetary policy independence due to deeper global financial integration.

Weaker global growth While corporate sectors have been busy with mergers, acquisitions and share buybacks with cheap credit, instead of investing in the real economy, the financial sector has successfully portrayed sovereign debt as ‘public enemy number one’.

Held hostage to finance capital, governments around the world have wasted the opportunity to improve productive capacities by investing in infrastructure and social goods when real interest rates were at historic lows. At around 24% of global GDP, the global investment rate remains below the pre-crisis level of around 27%, with investment rates in EDEs either declining or stagnant since 2010.

Failure to address the falling wages’ share of GDP, rising executive pay and asset price bubbles, due to ‘easy’ monetary policy, have continued to worsen growing income inequality and wealth concentration. Meanwhile, deep cuts in government spending and public services, while reducing top tax rates, cause anger and resentment, often blamed on ‘the other’, contributing to the spread of ‘ethno-populism’.

Perfect storm? Turbulence in currency markets is due to developing countries’ limited economic policy space. A decade after the GFC, developing countries still experience lower growth and investment rates.

Financial sectors of emerging market economies now have more and deeper links with international financial markets, also reflected in high foreign ownership of stocks and government bonds, with large sudden capital outflows causing financial crises.

Meanwhile, recent commodity price drops have accelerated the rising indebtedness of low-income countries. According to the IMF, 24 out of 60 (40%) are now either already facing debt crises or are highly vulnerable—twice as many as five years ago, with a few already seeking Fund bail-outs.

The problem is compounded by declining concessional aid from OECD countries. Also, more creditors are not part of the Paris Club, obliged to deal with sovereign debt on less onerous terms. Meanwhile, growing trade and currency conflicts are worsening the woes of those already worse-off.

]]>http://www.ipsnews.net/2018/09/another-global-financial-crisis-developing-countries/feed/0Crisis Drives Nicaragua to an Economic and Social Precipicehttp://www.ipsnews.net/2018/09/crisis-drives-nicaragua-economic-social-precipice/?utm_source=rss&utm_medium=rss&utm_campaign=crisis-drives-nicaragua-economic-social-precipice http://www.ipsnews.net/2018/09/crisis-drives-nicaragua-economic-social-precipice/#respondMon, 17 Sep 2018 18:07:02 +0000Jose Adan Silvahttp://www.ipsnews.net/?p=157649Five months after the outbreak of mass protests in Nicaragua, in addition to the more than 300 deaths, the crisis has had visible consequences in terms of increased poverty and migration, as well as the international isolation of the government and a wave of repression that continues unabated. Álvaro Leiva, director of the non-governmental Nicaraguan […]

]]>The post Crisis Drives Nicaragua to an Economic and Social Precipice appeared first on Inter Press Service. ]]>http://www.ipsnews.net/2018/09/crisis-drives-nicaragua-economic-social-precipice/feed/0Great Recession, greater illusionshttp://www.ipsnews.net/2018/09/great-recession-greater-illusions/?utm_source=rss&utm_medium=rss&utm_campaign=great-recession-greater-illusions http://www.ipsnews.net/2018/09/great-recession-greater-illusions/#commentsTue, 11 Sep 2018 08:01:04 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=157551In 2009, the world economy contracted by -2.2%. Growth in all developing countries declined from around 8% in 2007 to 2.6% in 2009 as the developed world contracted by -3.8% in 2009. The collapse of the Lehmann Brothers investment bank in September 2008 symbolized the US financial crisis that triggered the Great Recession of 2008-2009. […]

In 2009, the world economy contracted by -2.2%. Growth in all developing countries declined from around 8% in 2007 to 2.6% in 2009 as the developed world contracted by -3.8% in 2009. The collapse of the Lehmann Brothers investment bank in September 2008 symbolized the US financial crisis that triggered the Great Recession of 2008-2009.

Demise of Keynesian consensus In its immediate aftermath, a new consensus reversed the neoliberal Washington Consensus of the last two decades of the 20th century. Proclaimed by the G20’s London Summit of 2 April 2009, it envisaged return to Keynesian macroeconomic policies, including large-scale fiscal stimulus, supported by expansionary monetary policy.

The new policies were largely successful in tempering the recession, although much more should have been done. But with modest recovery, public debt, not economic stagnation, was soon sold as public enemy number one again.

Synchronized fiscal consolidation precipitated some Eurozone sovereign debt crises. Soon, several Eurozone countries experienced double dip recessions, as unemployment in Greece and Spain rose well over 25% following punitive policies required to qualify for European Union and International Monetary Fund (IMF) funding which mainly went to creditors.

Economists’ complicity Misleading, ideologically-driven empirical analyses claimed to support the new policy reversal. Alesina and his associates promoted the idea of ‘expansionary fiscal consolidation’, that contractionary government expenditure cuts would be more than offset by private spending expansion due to boosted investor confidence.

The IMF Fiscal Monitor ahead of the June 2010 G20 Summit grossly exaggerated public debt’s destabilizing effects, advocating rapid fiscal consolidation instead. Later, the IMF admitted it had underestimated the fiscal multiplier and hence potential growth from such debt!Faltering recovery and rising unemployment in the Eurozone caused the public debt-GDP ratio to rise instead. Meanwhile, supposedly unavoidable short-term pain caused prolonged suffering for millions without the promised medium- and long-term gains.

UN ahead of the curve Besides the Bank of International Settlements’ legendary William White, the United Nations was ahead of the curve, not only in warning of the impending crisis, but also by providing appropriate policy advice, albeit largely ignored.

For example, the United Nations 2006 and 2007 World Economic Situation and Prospects (WESP) warned of instability and growth slowdowns due to disorderly adjustment of growing macroeconomic imbalances among major world economies. WESP warned that falling US house prices could cause defaults to spike, triggering bank crises.

The IMF and the OECD simply ignored such warnings, projecting rosy futures, and a ‘soft landing’ at worst. The April 2007 IMF World Economic Outlook (WEO) emphatically dismissed widely held concerns about disorderly unwinding of global imbalances, claiming economic risks had subsided. The July 2007 issue claimed: “The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised up”.

The OECD June 2007 Economic Outlook insisted that the US slowdown was not heralding a period of worldwide economic weakness. “Rather, a ‘smooth’ rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth… Indeed, the current economic situation is in many ways better than what we have experienced in years.”

Although the IMF’s November 2008 WEO belatedly acknowledged the crisis’ severity, it forecast global recovery of 2.2% in 2009, suggesting the worst was over, thus supporting the reversal from fiscal expansion to consolidation. Depicting the ‘green shoots’ of recovery as self-sustaining, fiscal stimulus was abandoned after selective financial bailouts.

The IMF and OECD recommendations of structural reforms and fiscal consolidation have since failed to provide the long awaited, sustained global economic recovery.

The President of the UN General Assembly set up a commission led by Nobel laureate Joseph Stiglitz to study the crisis’ impact, especially for development, and recommend policies to prevent future crises. Yet, most remain unaware of its wide-ranging findings and policy recommendations, including international financial architecture reforms and reregulating finance to better serve the real economy.

The UN Secretary-General proposed a Global Green New Deal in 2009 to accelerate economic recovery and job creation while addressing sustainable development, climate change and food security. It envisioned massive, multilateral, cross-subsidized public investments in renewable energy and smallholder food production in developing countries.

Missed opportunity, heightened vulnerability With UN and similar policy advice largely ignored, global economic recovery has remained tepid for the last decade. This has prompted the ‘secular stagnation’ thesis obscuring the role of political and policy failures and missed opportunities.

Unconventional monetary policy, e.g., ‘quantitative easing’, has also widened income and wealth gaps besides fuelling financial asset bubbles. Earlier capital inflows are now exiting following monetary policy normalization in the West and new fears of emerging market vulnerabilities.

Having failed to ensure robust recovery despite accumulating more debt, both developed and developing countries have less policy and fiscal space to address the looming problems threatening them.

Meanwhile, the redistributive potential of fiscal policy has been weakened by reducing progressive direct taxes and increasing regressive indirect taxes, while cutting social expenditure. Also, powerful vested interests have blocked attempts to limit obscene executive remuneration and enforce minimum wages, arguing that such measures discourage business and job creation.

Also, the hyped notion of ‘inclusive inequality’ has served to justify rising economic disparities, by arguing that deregulation has enabled wealth accumulation and middle class expansion.

]]>http://www.ipsnews.net/2018/09/great-recession-greater-illusions/feed/1Global Economy Vulnerable a Decade Afterhttp://www.ipsnews.net/2018/07/global-economy-vulnerable-decade/?utm_source=rss&utm_medium=rss&utm_campaign=global-economy-vulnerable-decade http://www.ipsnews.net/2018/07/global-economy-vulnerable-decade/#respondMon, 30 Jul 2018 14:32:37 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=156954Ten years ago, deteriorating confidence in the value of US sub-prime mortgages threatened a liquidity crisis. The US Federal Reserve injected considerable capital into the market, but could not prevent the 2008-2009 global financial crisis (GFC). The 2008 meltdown exposed the extent of finance-led international economic integration, with countries more vulnerable to financial contagion and […]

Ten years ago, deteriorating confidence in the value of US sub-prime mortgages threatened a liquidity crisis. The US Federal Reserve injected considerable capital into the market, but could not prevent the 2008-2009 global financial crisis (GFC).

The 2008 meltdown exposed the extent of finance-led international economic integration, with countries more vulnerable to financial contagion and related policy ‘spillovers’ exacerbating real economic volatility. It also revealed some vulnerabilities of the post-Second World War (WW2) US-centred international financial ‘architecture’ – the Bretton Woods system – modified after its breakdown in the early 1970s.

Jomo Kwame Sundaram

Robert Triffin, the leading international monetary economist of his generation, had long expressed concerns about the use of a national currency as the major reserve currency. International liquidity provision using the greenback required the US to run balance-of-payments deficits, ensuring US monetary policy spillovers to the world economy while eroding confidence in the greenback.

The Bretton Woods system was under increasing strain from the late 1960s, as US President Johnson funded the increasingly unpopular Vietnam War by issuing debt, rather than through higher taxes. The system finally broke down when the Nixon administration unilaterally cancelled the US commitment to dollar (gold) convertibility in August 1971.

What emerged was a ‘non-system’ for Triffin. Since then, the US dollar, issued by fiat, has relied on the greenback’s own credibility and legitimacy to continue as de facto world currency.

Current ‘non-system’ In 1985, Triffin identified three systemic problems of the international financial ‘non-system’. First, “its fantastic inflationary proclivities, leading to world reserve increases eight times as large over a brief span of fifteen years” since the breakdown of the Bretton Woods system.

Second, “skewed investment pattern of world reserves, making the poorer and less capitalized countries of the Third World the main reserve lenders, and the richer and more capitalized industrial countries the main reserve borrowers of the system”.

Anis Chowdhury

Third, “crisis-prone propensities reflected in the amplitude” and frequency of financial crises such as the 1980s’ debt crisis causing developing countries’ ‘lost decades’. Other critics have identified further flaws.

First is the ‘recessionary bias’, due to the asymmetric burden of adjustment to payments imbalances. While deficit countries are under great pressure to adjust, especially when financing dries out during crises, surplus countries do not face corresponding pressures to correct their own imbalances.

Second is the cost of the perceived need of emerging and developing countries to ‘self-insure’ against the strong boom-bust cycles of global finance by building up large foreign exchange reserves and fiscal resources, especially after the 1997-1998 Asian financial crisis.

Such precautionary measures enabled emerging market economies to undertake strong counter-cyclical measures during the GFC. But they have huge opportunity costs as such reserves are generally held as presumably safe, liquid, low-yielding assets, such as US Treasury bonds.

Hence, Triffin complained that “the richest, most developed, and most heavily capitalized country in the world should not import, but export, capital, in order to increase productive investment in poorer, less developed, and less capitalized countries… [The] international monetary system is at the root of this absurdity.”

Reform appeals There were renewed calls for reform of global economic governance in the wake of the GFC, especially by the 2009 UN Conference on the World Financial and Economic Crisis and Its Impact on Development.

Governance reform of the IMF and World Bank should ensure fairer, more equitable representation of developing countries. This should improve the accountability and credibility of the Bretton Woods institutions, enabling them to better address current financial and economic challenges in the world.

The UN also called for a “multilateral legal framework for sovereign debt restructuring”. Without a fair, legally binding, multilateral sovereign debt work-out mechanism, developing countries remain vulnerable to private creditors, including vulture funds.

There were renewed hopes for trade multilateralism and early successful completion of the Doha Development Round of the World Trade Organisation (WTO), giving developing countries better access to external markets, seen as vital for balanced global recovery and development. The promise to keep international trade open echoed G20 leaders’ unfulfilled commitment to eschew protectionism.

However, only a few of the modest promised reforms have been implemented, with limited changes in international financial governance, still dominated by G7 economies. After all, every financial crisis is followed by appeals for reforms, with complacency setting in with hints of recovery.

Less coping capability Most developed country governments are now more heavily indebted than in 2008, when they bailed out large financial institutions, but failed to sustainably revive the world economy. Major monetary authorities do not have much policy space left after long pursuing unconventional expansionary policies.

Meanwhile, developing countries have been subject to increasing international integration, e.g., through global value chains, foreign financial institutional investments and increased short-term capital flows induced by the unconventional monetary policies of the US Fed, ECB and Bank of Japan, while debt-sustainability concerns for some are growing again.

These vulnerabilities have been compounded by growing trade protectionism, and dwindling precautionary reserve holdings of many developing economies as global trade has slowed. Even before President Trump’s election, developed countries had effectively killed the Doha Development Round, not least by opting for bilateral and plurilateral, instead of multilateral free trade deals.

Trump’s more explicit rejection of multilateralism in his efforts to eliminate major US bilateral trade deficits are now expected to further set back prospects for world economic recovery. Despite pious declarations to the contrary, most national policymakers typically turn from rhetoric about international cooperation to focus on domestic issues.

It has not been different this last time. A decade after the worst economic downturn since the 1930s’ Great Depression, the world economy remains vulnerable.

Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok.Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

]]>http://www.ipsnews.net/2018/07/global-economy-vulnerable-decade/feed/0Globalization, Inequality, Convergence, Divergencehttp://www.ipsnews.net/2018/07/globalization-inequality-convergence-divergence/?utm_source=rss&utm_medium=rss&utm_campaign=globalization-inequality-convergence-divergence http://www.ipsnews.net/2018/07/globalization-inequality-convergence-divergence/#commentsThu, 26 Jul 2018 09:52:49 +0000Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=156886Economic divergence among countries and regions was never pre-ordained. According to the late cliometrician Angus Madison and other economic historians, the great divergence between the global North and South, between developed and developing countries, began around five centuries ago, from the beginning of the European, particularly Iberian colonial conquests. From about two centuries ago, around […]

Indonesia has one of the highest rates of income inequality in Southeast Asia, according to the World Bank. Credit: Sandra Siagian/IPS

By Jomo Kwame SundaramKUALA LUMPUR, Malaysia, Jul 26 2018 (IPS)

Economic divergence among countries and regions was never pre-ordained. According to the late cliometrician Angus Madison and other economic historians, the great divergence between the global North and South, between developed and developing countries, began around five centuries ago, from the beginning of the European, particularly Iberian colonial conquests.

From about two centuries ago, around the time of the Industrial Revolution, divergence accelerated with uneven productivity advances. During the 20th century, national level inequalities went down in many developed countries in the period after the First World War until around the 1970s with the rise of labour, peasant and other popular mobilizations.

Inequality, not only at the national level, but also at the international level, seems to affect the pattern of aggregate demand, particularly in developing countries, which in turn influences future investment and growth prospects and patterns.

Thus, the immediate post-Second World War period saw relatively high growth during what some Anglophone economists call the ‘Golden Age’, due to a combination of Keynesian policies at the national level in developed economies, and partially successful development policies in many newly-independent countries of Asia and Africa. However, this eventually came to an end in the 1970s for a variety of reasons.

Recent trends Since then, inequalities have begun to grow again at the national level in many countries, but international divergence has declined in more recent decades. This recent convergence is due to significantly accelerated growth in some developing countries as expansion in some developed countries slowed. Among developing countries, growth was initially largely confined to East Asia and, to a lesser extent, South Asia, bypassing much of the rest of Asia, Africa and Latin America.

Africa suffered a quarter-century of stagnation from the late 1970s until the beginning of this century when commodity prices rose once again and China began investing in the continent. There was at least one lost decade in Latin America in the 1980s, and arguably, a second one for many on the continent in the following decade.

Such variation needs to be recognized. The recent convergence overall obscures very mixed phenomena of greater national-level inequalities in many economies, but also some international convergence due to more rapid growth in some major developing economies.

However, this convergence has begun to slow again, following the collapse of commodity prices since late 2014. This initially began with petroleum, but eventually affected almost all other commodities, especially mineral prices, slowing the decade of growth in Africa.

Divergence The recent phenomena which many term globalization are often linked to international economic liberalization, but the strengthening of property rights has also been important. This has not only consolidated traditional property rights, but also extended property rights in novel ways, e.g., ostensibly to clarify supposedly ambiguous entitlements.

These have involved not only national legislation, but also free trade agreements and investment treaties at the international level, e.g., to consolidate ostensible asset-related entitlements, including so called intellectual property rights.

While few economic commentators may openly advocate increasing inequality, or blatantly espouse divergence, the consequences of many policies and positions associated with the conventional wisdom tend to increase divergence. For example, agricultural trade liberalization has undermined productive potential as only rich countries can afford subsidies, which most developing countries cannot afford.

For a long time, Africa used to be a net food exporter until the 1980s. Since then, it has become a net food importer. With trade liberalization, Africa was supposed to realize its true potential. Instead, Africa has lost much of its existing productive potential, not only in manufacturing, but also in agriculture.

To make matters worse, African farmers cannot compete with subsidized food imports from the EU and the USA. For example, as US consumers have a strong preference for chicken breasts, wings and legs from the US are not only flooding the Americas, but increasingly, Africa and Asia.

Convergence prospects It is also important to consider the prospects for possible convergence in the long term due to the increased availability and affordability of capital. Besides recent Chinese international financing initiatives, quantitative easing, other unconventional monetary policies, recycling of petrodollars and private East Asian capital, as well as novel, and often illicit international financial flows may transform the horizon of possibilities.

Not unlike the Cold War and the aftermath of 9/11, the resurgence of European ethno-populism in reaction to growing economically and politically driven immigration into developed Western economies has reminded the world of the squalid conditions still prevailing in much of the global South, especially in Africa.

Perhaps more importantly, geography, rather than class, is increasingly viewed by many as the major determinant of income and welfare levels, with vastly different living standards associated with location rather than educational qualifications, occupation or productivity.

Thus, without the prospect of rapid convergence, not only nationally between wealth classes, but also internationally between rich and poor nations, the failure of economic globalization to deliver on its implicit promise of liberalizing cross-border human migration will haunt international relations, human rights and political liberalism for some time to come.

Sunita Narain* is Director-General of the Centre for Science and Environment (CSE) & Editor of Down to Earth magazine

By Sunita NarainNEW DELHI, Jul 20 2018 (IPS)

A global trade war has broken out. The United States fired the first salvo and there has been retaliation by the European Union, Canada, China and even India. Tariffs on certain imported goods have been increased in a tit-for-tat reaction.

Sunita Narain

Analysts see it as a limited war in the understanding that Donald Trump is all for “free-trade”. But this view denies the fact that a tectonic shift is taking place in the world. It is a war for ascendency to global leadership; a contest between the US and China.

China is heaving its might on the world. President Xi Jinping’s Belt and Road Initiative is an open call for its global influence. In July 2017, China launched the ambitious plan to invest in the technology of the future—artificial intelligence.

There are dark (unconfirmed) whispers about how it is going about acquiring many new-age technologies by rolling over western companies operating in vast markets.

The last century belonged to the US and Europe with Russia as the communist outlier. China became mighty all because of the emergence of the free trade regime in the world. Just some 35-odd years ago, it was behind the iron curtain.

But then the World Trade Organization (WTO) was born in January 1995. China’s trade boomed. It took over the world’s manufacturing jobs. India, too, found its place by servicing outsourced businesses like telemarketing. “Shanghaied” and “Bangalored” entered the lexicon—as jobs (and pollution) moved continents.

This way, globalisation fulfilled its purpose to usher in a new era of world prosperity. Or so, we thought.

Instead, globalisation has made the world more complicated and convoluted. In early 1990s, when the discussions on the General Agreement on Tariffs and Trade (GATT) were at its peak, there was a clear North-South divide.

The then-developed world pushed for opening up of trade. It wanted markets and protection through rules on “fair” trade and intellectual property. The then developing world was worried what the free trade regime would do to its nascent and weak industrial economies.

More importantly, there were fears of what these new open trade rules would do to its farmers, who would have to compete with the disproportionately subsidised farmers of the developed world.

In 1999 tensions flared up at the WTO ministerial meet in Seattle. By this time, reality of globalisation had dawned and so it was citizens of the rich world who protested for labour rights, worried about outsourcing of their jobs and environmental abuses.

But these violent protests were crushed. The next decade was lost in the financial crisis. The new winners told the old losers that “all was well”.

Today Trump has joined the ranks of the Leftist Seattle protesters, while India and China are the new defenders of free trade. The latter in fact want more, much more of it.

But again, is it so straightforward? All these arrangements are built on the refusal to acknowledge the crisis of employment. The first phase of globalisation led to some displacement of labour and this is what Trump is griping about.

But the fact is that this phase of globalisation has only meant war between the old elite (middle-classes in the world of trade and consumerism) and the new elite. It has not been long enough or deep enough to destroy the foundations of the livelihoods of the vast majority of the poor engaged in farming. But it is getting there.

But this is where the real impact of globalisation will be felt. Global agricultural trade remains distorted and deeply contentious. The trade agreements targeted basics like procurement of foodgrains by governments to withstand scarcity and the offer of minimum support price to farmers.

Right now, the Indian government is making the right noises that it will stand by its farmers. But we will not be able to balance this highly imbalanced trade regime if we don’t recognise that employment is the real crisis.

It is time that this round of trade war should be on the need for livelihood opportunities. Global trade talks must discuss employment not just industry. It must value labour and not goods.

This is what is at the core of the insecurity in the world. It is not about trade or finance. It is about the biggest losers: us, the people and the planet. The link to the original article follows:https://www.downtoearth.org.in/

]]>http://www.ipsnews.net/2018/07/balancing-trade-wars/feed/0Will Trump’s Trade War Make America Great Again?http://www.ipsnews.net/2018/07/will-trumps-trade-war-make-america-great/?utm_source=rss&utm_medium=rss&utm_campaign=will-trumps-trade-war-make-america-great http://www.ipsnews.net/2018/07/will-trumps-trade-war-make-america-great/#commentsMon, 16 Jul 2018 14:26:11 +0000Anis Chowdhury and Jomo Kwame Sundaramhttp://www.ipsnews.net/?p=156713The United States has had the world’s largest trade deficit for almost half a century. In 2017, the US trade deficit in goods and services was $566 billion; without services, the merchandise account deficit was $810 billion. The largest US trade deficit is with China, amounting to $375 billion, rising dramatically from an average of […]

The United States has had the world’s largest trade deficit for almost half a century. In 2017, the US trade deficit in goods and services was $566 billion; without services, the merchandise account deficit was $810 billion.

The largest US trade deficit is with China, amounting to $375 billion, rising dramatically from an average of $34 billion in the 1990s. In 2017, its trade deficit with Japan was $69 billion, and with Germany, $65 billion. The US also has trade deficits with both its NAFTA partners, including $71 billion with Mexico.

President Trump wants to reduce these deficits with protectionist measures. In March 2018, he imposed a 25% tariff on steel imports and a 10% tariff on aluminium, a month after imposing tariffs and quotas on imported solar panels and washing machines. On 10 July, the US listed Chinese imports worth $200 billion annually that will face 10% tariffs, probably from September, following 25% tariffs on $34 billion of such imports from 7 July.

Do US trade deficits reflect weakness?

The usual explanation for bilateral trade deficits is price differentials. However, the US accuses such countries of ‘unfair’ trade practices, such as currency manipulation, wage suppression and government subsidies to boost exports, besides blocking US imports.

Trump views most trade deals such as NAFTA as unfair. His team insists that renegotiating trade deals, ‘buying American’, a strong dollar and confronting China will shrink US trade deficits.

Anis Chowdhury

But the country’s overall trade deficit, offset by capital inflows, is related to the gap between its savings and investments. The US spends more than it produces, thus importing foreign goods and services. Cheap credit fuels debt-financed consumption, increasing the trade deficit.

Total US household debt rose to $13.2 trillion in the first quarter of 2018, the 15th consecutive quarter of growth in the mortgage, student, auto and credit card loan categories. American consumer debt was more than double GDP in 2017.

US government budget deficits have also been growing. From 67.7% of GDP in 2008, US government debt rose to 105.4% in 2017. The federal budget deficit was $665 billion in FY2017, rising 14% from $585 billion in FY2016.

The US budget deficit was 3.5% of GDP in 2017. According to the US Congressional Budget Office, it will surpass $1 trillion by 2020, two years sooner than previously projected, due to Trump tax cuts and spending increases.

The growing US economy may also increase the trade deficit, as consumers spend more on imported goods and services. The stronger dollar has made foreign products cheaper for American consumers while making US exports more expensive for foreigners.

Jomo Kwame Sundaram. Credit: FAO

These underlying economic forces have become more important than policies in raising the overall trade deficit, while bilateral deficits reflect specific commercial relations with particular countries. Thus, disrupting bilateral trade relations may only shift the trade deficit to others.

Have the cake and eat it?

So, why does the US have a structural trade deficit? As the de facto international ‘reserve currency’ after the Second World War, the US has provided the rest of the world with liquidity. Its perceived military strength means it is seen as a safe place to keep financial assets. Of about $10 trillion in global reserves in 2016, for example, around three fifths were held in US dollars.

US supply of international liquidity by issuing the global reserve currency offers several economic advantages. It also earns seigniorage from issuing the main currency used around the world, due to the difference between the face value of a currency note and the cost of issuing it.

With growing foreign demand for dollars, the US can run deficits almost indefinitely by creating more debt or selling assets. Demand for dollar-denominated assets, e.g., US Treasury bonds, raises their prices, lowering interest rates, to finance both consumption and investment.

While foreign investors buy low-yielding, short-term US assets, Americans can invest abroad in higher-yielding, long-term assets. The US usually reaps higher returns on such investments than it pays for debt, labelled America’s ‘exorbitant privilege’.

Thus, for the US to enjoy the ‘exorbitant privilege’ of the dollar’s role as the major reserve currency, it must run a chronic trade deficit. Therefore, giving up the dollar’s global reserve currency status will have major implications for the US economy, finances and living standards.

Can the US win Trump’s trade war?

Barry Eichengreen noted that countries in military alliances with reserve-currency issuing countries hold about 30% more of the partner’s currency in their foreign-exchange reserves than countries not in such alliances. Instead, Trump has prioritized reducing trade deficits to strengthen the US dollar and dominance while disrupting some old political alliances.

As the US retreats from the global diplomatic stage, use of other reserve currencies, including China’s renminbi, has been growing, especially in Europe and Africa. Thus, ironically, as Trump wages trade wars on both foes and friends, China will probably gain, both geopolitically and economically.

The resulting global economic shift will not only hurt the US dollar and economy through the exchange rate and borrowing costs, but also its geopolitical dominance.

Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok.Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

]]>http://www.ipsnews.net/2018/07/will-trumps-trade-war-make-america-great/feed/1Economic crisis managementhttp://www.ipsnews.net/2018/06/economic-crisis-management/?utm_source=rss&utm_medium=rss&utm_campaign=economic-crisis-management http://www.ipsnews.net/2018/06/economic-crisis-management/#respondSat, 30 Jun 2018 12:03:00 +0000Rashid Amjadhttp://www.ipsnews.net/?p=156497Do forgive the people of this country if they cannot make sense of our present economic predicament. On one hand, they are told repeatedly (and correctly) that the economy has started reaping the benefits of CPEC — the ‘game changer’ — in the form of significantly reduced load-shedding, an upturn in investment and a not […]

Do forgive the people of this country if they cannot make sense of our present economic predicament. On one hand, they are told repeatedly (and correctly) that the economy has started reaping the benefits of CPEC — the ‘game changer’ — in the form of significantly reduced load-shedding, an upturn in investment and a not unimpressive recovery in economic growth. At the same time, they are told that the economy is in dire straits!

A severe foreign exchange crisis threatens to reverse significantly the recent economic upturn. Our import bill exceeds our export earnings, including remittances, and if we add to it the repayments due on foreign loans, the gap is immense: $25 billion or over eight per cent of GDP. The country’s foreign exchange reserves are fast running out. We have already reached the critical level of just two months of imports. The alarm bells are ringing as foreign exchange reserves continue to lose almost $1bn a month. We must now wake up to the reality that, unless we can raise $8bn to $10bn in new loans and obtain a roll-over of existing debts, we could well face default on our debt payments — which is a polite way of saying ‘bankruptcy’.

The current state of economic affairs requires that some important decisions be taken.

The economic problem we now face cannot be traced solely to the previous government’s stubborn refusal to adjust the overvalued exchange rate. Our economic managers appear to have lost the plot over the last two years. For one, they were unable to keep track of CPEC-funded investment flows, whose exact form of financing has never been made transparent. The second and perhaps more important reason for our plight is that the federal and some provincial governments decided to go on a spending spree — launching projects, oblivious to their cost and foreign exchange implications. This is not new: the last two governments were equally guilty.

The current state of economic affairs cannot be allowed to continue. Some important decisions may need to be taken in the crunch, even by the interim government in the national interest. The simple reason for this is that, unless some immediate measures are taken to restore business confidence and, most importantly, to calm the foreign exchange market, the exchange rate will continue to fall. In the extreme scenario, we could enter a freefall situation. Given this uncertainty, anybody with some staying power will not be willing to part with their US dollars, betting that the rupee will fall even more. Those wanting foreign exchange will be chasing less and less available in the market.

Yet, nobody will bail us out, whether it is the IMF or anyone else, without imposing ‘conditionalities’ — primarily to ensure that they get their money back. Here, our team of negotiators (from the finance ministry and State Bank) must learn some lessons from the past. The last two governments entered into agreements with the IMF almost immediately upon coming into power. The 2008 agreement with the IMF was an unmitigated disaster in terms of its impact on growth, which fell from near 6pc to less than 1pc. The economy never quite recovered after that. The 2013 agreement, partly due to the groundwork done by the interim finance team, was able to avoid this shock through a more gradual decline in the fiscal deficit. However, agreeing almost immediately to a reforms agenda was unwise. To the extent possible, the new government should seek some time to finalise the content and sequencing of economic reforms, for which it can take full ownership and deliver.

The immediate challenge will be to agree to a stabilisation package, at an appropriate speed and sequencing of adjustment, that protects the country’s economic interests. Despite its weak bargaining position, the government should work towards a stabilisation package in which the burden of adjustment primarily falls in a sequenced way on the fiscal deficit rather than on the exchange rate. This is not to deny that we need to adjust the exchange rate, but we must keep this limited to its current overvaluation. We must remain fully aware that the cost of a very steep devaluation is especially high for our heavily indebted economy. Doing so would also raise the value of imports, especially oil products, fuelling inflation and eroding competitiveness. To that extent, it would neutralise the gains from devaluation. Most importantly, it would increase the cost of our defence preparedness, which in the current volatile situation cannot be compromised at any cost.

Of course, cutting the fiscal deficit is not without cost, even if the decline is made gradual. A 2pc drop in the fiscal deficit would reduce our current GDP growth of around 6pc to near half this amount. Most importantly, to counteract this, we must put in place measures that allow the recent growth momentum to build on the revival of manufacturing and upturn in exports and create the climate to encourage the much-awaited revival in private investment. All this will ensure that the decline in GDP growth is minimised. The emphasis here should be on reversing the anti-export trade and tariff regime and making a serious attempt at cutting down on losses from public-sector enterprises. This should entail including workers and their elected representatives in any restructuring negotiations.

Over the medium to long term, the policy focus must shift to expediting coal mining in Thar (which could finally remove our dependency on imported oil and gas), preserving and supplementing our water resources, and switching the emphasis in education from merely increasing numbers to improving the quality of education imparted and the social skills of our graduates.

If seriously and successfully monitored and implemented, this agenda will likely keep the newly elected government busy through its term in office. Come 2023, it will be judged on these achievements. Inshallah.

The writer is professor at the Lahore School of Economics and former vice chancellor of the Pakistan Institute of Development Economics.

]]>http://www.ipsnews.net/2018/06/economic-crisis-management/feed/0Trump is Here to Stay and Change the Worldhttp://www.ipsnews.net/2018/06/trump-stay-change-world/?utm_source=rss&utm_medium=rss&utm_campaign=trump-stay-change-world http://www.ipsnews.net/2018/06/trump-stay-change-world/#respondMon, 18 Jun 2018 15:05:37 +0000Roberto Saviohttp://www.ipsnews.net/?p=156274Donald John Trump, 45th and current president of the United States, has been seen in many illustrious circles as an anomaly that cannot last. Well, it is time to look at reality. If we put on the glasses of people who have seen their level of income reduced and are afraid of the future, Trump […]

Donald John Trump, 45th and current president of the United States, has been seen in many illustrious circles as an anomaly that cannot last. Well, it is time to look at reality.

If we put on the glasses of people who have seen their level of income reduced and are afraid of the future, Trump is here to stay, and he is a result and not a cause.

Roberto Savio

In his year and a half of government, Trump has not lost one of his battles. He has changed the political discourse worldwide, established new standards of ethics in politics, a new meaning of democracy, and his electoral basis has not been shrinking at all.

His critics are the media (which a large majority of Americans dislike), the elite (which is hated) and professionals (who are considered to be profiting at the expense of the lower section of the middle class).

There is now a strong divide with the rural world, the de-industrialised parts of the United States, miners with their mine closed, etc. In addition, white Americans feel increasingly threatened by immigrants, minorities, corporations and industries which have been using the government to their advantage. At every election their number shrinks by two percent.

Let us not forget that Trump was elected by the vote of the majority of white woman, in a country which is the bedrock of feminism.

I know that this could create some irate reactions. The United States is home to some of the best universities in the world, the most brilliant researchers as shown by the number of Nobel prizes awarded , very good orchestras, libraries, museums, a vibrant civil society, and so on. But the sad reality is that those elites count, at best, for no more than 20 percent of the population.

In 80 percent of cases, TV news is the only source of information on international affairs. Newspapers are usually only local, with exception of a few (Wall Street Journal, New York Times, Washington Post, Los Angeles Times, in all less than ten), and have a readership of 35 percent of the population.

You have only to travel in the US hinterland to observe two striking facts: it is very rare to meet somebody who knows geography and history even minimally, and everybody is convinced that the United States has been helping the entire world for which nobody is grateful.

An investigation by the New York Times found out that Americans were convinced that their country has been giving at least 15 percent of its budget for support and philanthropy. In fact, in recent decades the real figure has been below 0.75 percent. At the same time, it has a number of institutes of international studies of the highest level with brilliant analysts, plus a large number of international NGOs. But only 34 percent of the member of the Senate, and 38 percent of members of the House of Representatives have a passport…

The country is divided into two worlds. Of course, the same happen in every country, and in Africa or Asia the division between elite and low-level population is even more extreme. But the United States is an affluent country, where for more than two centuries efforts have been made on the fronts of education and integration in a country which has also been called the “melting pot”, and where it is widely believed that it is the best – if not the only – democracy in the world.

Trump, therefore, has an easy and captive electorate, made up of strong believers, and we cannot understand why, if we do not go over the history of American politics, which is in fact parallel to the political history of Europe. The calls for a lengthy analysis which is what is missing in today’s media, and in which recent US politics can be divided (very roughly) into three historical cycles.

The first, from 1945 to 1981), saw the political class convinced that the priority was to avoid a new world war. For this, institutions for peace and cooperation had to be built, and individuals were to be happy with their status and destiny.

Internationally, that meant the creation of the United Nation, multilateralism as a way to negotiate on the basis of participation and consensus, and international cooperation as a way to help poor countries develop and reduce inequalities. Domestically, this was to be done by giving priority to labour over capital. Strong trade unions were created and in 1979 income from labour accounted for 70 percent of total income. A similar trend was also the seen in Europe.

The second cycle ran from 1981 to 2009, the year Barack Obama was named president. On behalf of the corporate world, Ronald Reagan had launched the neoliberal wave. He started by shutting down the trade union of air traffic controllers, and went on to dismantle much of the welfare and social net built over the previous four decades, eliminating regulations, giving free circulation to capital, creating unrestricted free trade, and so on.

That led to delocalisation of factories, the decline of trade unions and their ability to negotiate, and a very painful reduction of the labour share of wealth, which fell from 70 percent in 1979 to 63 percent in 2014, and has continued to decline ever since.

Unprecedented inequalities have become normal and accepted. Today, an employee at Live Nation Entertainment, an events promotion and ticketing company, who earns an average of 24, 000 dollars would need 2,893 years to earn the 70.6 million dollars that its CEO, Michael Rapino, earned last year.

Reagan had a counterpart in Europe, Margaret Thatcher, who dismantled trade unions, ridiculed the concept of community and common goods and aims (“… there is no such thing as society. There are individual men and women and there are families …” ), partly followed by Gerard Schroeder in Germany. Globalisation became the undisputed new political vision, far from the rigid ideologies which had created communism and fascism, and were responsible for the Second World War. The market would solve all problems, and governments should keep their hands off.

Reagan was followed by Bush Sr., George H. W. Bush. who somewhat moderated Reagan’s policies. While he started the war with Iraq, he did not go on to invade the entire country. And he was followed by a Democrat, Bill Clinton, who did not challenge neoliberal globalisation but tried to ride it, showing that the left (in American terms) could be more efficient than the right. To give just one example, it was Clinton who completed deregulation of banks by repealing the Glass-Steagall Act which separated savings and investment banking. That led to the transfer of billions of dollars from savings to investments, or speculation, with the result that today banks consider customer activity less lucrative than investments, and finance has become a sector that is totally separate from the production of goods and services. There are now 40 times more financial transactions in one day than output from industry and services, and finance is the only sector of human activity without any international control body.

Markets are now more important than the vote of citizens given that, in many cases, it is they that decide the viability of a government. Furthermore, this has become a sector with no ethics: since the financial crisis of 2008, banks have paid a whopping amount of 321 billion dollars in penalties for illegal activities.

Clinton’s conviction that the left could be successful also had its counterpart in Europe, like Reagan had Thatcher. It was Tony Blair, who constructed a theoretical design for explaining the submission of the left to neoliberal globalisation: this was the so-called Third Way which was, in fact, was a centrist position that tried to reconcile centre-right economic and centre-left social policies.

However, it became clear that neoliberal globalisation was in fact lifting only a few boats and that capital without regulation was becoming a threat. Social injustices continued to increase and legions of people in the rural area felt that towns were syphoning off all revenues and that the elite was ignoring them, and unemployed workers and the impoverished middle class no longer felt old loyalties to the left, which was now considered representative of the elite and professionals.

In the United States the Democratic Party, which also held a neoliberal view with Clinton, began to change its agenda from an economic approach to one of human rights, defending minorities, Afro-Americans and immigrants, and advocating their inclusion in the system.

The fight was no longer between corporations and trade unions, and Obama was the result of that fight, the champion of human rights also as an instrument of international affairs. In fact, while he had a brilliant agenda on human rights, he did very little on the social and economic front, beside the law on national health. But his alliance of minorities and progressive whites was a personal baggage, who could not pass on to an emblematic figure of the establishment like Hillary Clinton.

That led to a new situation in American politics. Those on the left began to see defence of their identity (and their past) as the new fight, now that the traditional division between left and right had waned. Religious identity, national identity, fight against the system and those who are different, become political action.

It should be stressed that the same process happened in Europe, albeit in a totally different cultural and social situation. Those left out deserted the traditional political system to vote for those who were against the system, and promised radical changes to restore the glories of the past.

Their message was necessary nationalist, because they denounced all international systems as merely supporting the elites who were the beneficiaries. It was also necessarily to find a scapegoat, like the Jews in the thirties. Immigrants were perfect because they aroused fear and a perceived loss of traditional identity, a threat in a period of large unemployment.

The new political message from the newcomers was to empower those left out, those who felt fear, those who had lost any trust in the political class, and promise to give them back their sovereignty, reject intruders and take power away from the traditional elites, the professionals of politics, to bring in real people.

Since the end of the financial crisis in 2008 – which brought about even further deterioration of the social and economic situation) – those parties known as populist parties started to grow and they now practically dominate the political panorama.

In the United States, the Republicans of the Tea Party, radical right-wing legislators, were able to change the Republican party, pushing out those called compassionate conservatives because they had social concern. In Europe, the media were startled to see workers voting for Marine Le Pen in France, but the left had lost any legitimacy as representative of the lower incomes; technological change led to the disappearance of social identities, like workers.

In a period of crisis, there was no capability for redistribution. The left had now found itself in the middle of a crisis of identity and it will not emerge from it soon.

Let us now come to today. In November 2016, to universal amazement, (and his own) Trump was elected president of the United States, and just four months later, in March 2017, Brexit came as a rude awakening for Europe. The resentful and fearful went to the polls to get Great Britain out of Europe. The fact that the campaign was plagued by falsehood – recognised by the winners after the referendum – was irrelevant. Who was against Brexit? The financial system, the international corporations, the big towns like London, university professors: in other words, the system. That was enough.

Here, I have deliberately lumped together the United States and Europe (the European Union) to show that globalisation has had a global impact. A United States, which had been the creator and guarantor of the international system, started to withdraw from it under Reagan when he felt that it was becoming a straitjacket for the United States.

This started the decline of the United Nations: on American initiative, trade was taken away from the United Nations and the World Trade Organisation (WTO) was created. Globalisation has two engines, trade and finance, and both are now out of the United Nations, which has become an institution for health, education, children, woman and other non-productive sectors, according to the market. It is no coincidence that Trump is now fighting against the globalisation that United States invented, and one of its main enemies is the WTO.

An old maxim is that people get the government they deserve. But we should also be aware that they are being pushed by a new alliance: the alternative right alliance. In all countries it has the same aim: destroy what exists. This network is fed at the same time by Russia and the United States. American alt-right ideologues like Steve Bannon are addressing European audiences to foster the end of the European Union, with clear support from the White House. The populists in power, like Viktor Orban in Hungary or Matteo Salvini in Italy (as well those not in power, like Le Pen) all consider Trump and Vladimir Putin as their points of references. Such alliances are new, and they will become very dangerous.

And now we come to Mr. Trump. After what has been said above, it is clear why he should be considered a symptom and not a cause, while his personality is obviously playing an additional important role. It should be noted that he has not lost any important battle since he came to power. He has been able to take over the Republican party completely, and it is now de facto the Trump Party.

In the primaries for the November 2017 elections (for all House of Representative seats and 50 percent of those of the Senate), he intervened to support candidates he liked, and their opponents always lost. In South Carolina, conservative Katie Arrington, who won against a much stronger opponent, Mark Sanford, declared in her acceptance speech: our party is the Trump party.

Trump knows exactly what his voters think, and he always acts in a way that strengthens his support, regardless of what he does. He is a known sexist, and is now involved in a scandal with a porno star? He has moved the US embassy in Israel to Jerusalem and he now has the support of the evangelists, a very large and puritan Protestant group which is an important source of votes. (Interestingly, Guatemala and Paraguay which decided to move their embassies to Jerusalem are also run by evangelists.)

Trump has refused to disclose his incomes and taxes, and he has not formally separated himself from his companies. In the United States, this is usually is enough to force people to resign.

He has removed from his cabinet all the representatives of finance and industry he had put in on his arrival (in order to be accepted by the establishment) and replaced them with right-wing hawks, highly efficient and not morons, from National Security Advisor John Bolton to Secretary of State Mike Pompeo. He has managed to obtain Gina Hastel, a notorious torturer, as director of the CIA with the votes of Democrats.

He has turned his back on a highly structured treaty with Iran (and other four major countries) to forge a totally unclear agreement with North Korea, which creates problems with Japan, an American ally by definition. He has decided to side with Israel and Saudi Arabia against Iran, because that move has the support of a large American sector.

In addition to narcissism, what moves Trump are not values but money. He has quarreled with all historical allies of the United States and he is now engaging in a tariff war with them, while starting one with China, simply on the basis of money. However while erratic, Trump is not unpredictable. All that he has done, he announced during his electoral campaign.

Trump believes he is accountable to no one, and has created a direct relationship with his electors, bypassing the media. According to The Washington Post’s Fact Checker blog, which keeps track of Trump’s many misstatements, untruths and outright lies, he exceeded 3,000 untrue or misleading statements in his first 466 days – on average, 6.5 untruths a day. Nobody cares. Very few are able to judge.

When a president of United States announces that he is abandoning the treaty with Iran, because they are the main financier of ISIS and Al Qaida, the lack of public reaction is a good measure of the total ignorance of most Americans.

Americans have no idea that Islam is divided between Sunni and Shiite, and that the terrorists are Sunni and based on an extreme interpretation of Islam, Wahhabism, or Salafism. Iranians, who are not Arabs, are Shiite, and are considered apostate by the Sunni extremists; Iran has lost thousands of men in the fight against ISIS.

This ignorance helps Trump win Republican voters, no matter what.

The fact that Trump knows exactly what his voters feel and think feeds his narcissism. After his meeting with North Korea’s Kim Jong-un, at a press conference he said of previous US presidents: “I don’t think they’ve ever had the confidence, frankly, in a president that they have right now for getting things done and having the ability to get things done”.

He does not tolerate any criticism or dissent, as his staff well knows. The result is that he is surrounded by yes men, like no president before. His assistant for trade, Peter Navarro, has declared that there should be a special place in hell for foreign leaders who disagree with Trump.

According to the large majority of economists, the tariff war that he has now started now with US allies plus China will bring growth down all over the world, but nobody reacts in the United States. It is all irrelevant to his voters. He now has a 92 percent rate of confidence, the highest since the United States has existed.

Considering all he has done in less than two years against the existing order leads us to consider that the real danger is that he will be re-elected, and leave office only in 2024. By then, the changes in ethics and style will have become really irreversible.

With many candidates in various countries looking to him as a political example, he will certainly be able to change the world in which we have grown and which, albeit with many faults, has been able to bring about growth and peace.

It is true that the traditional political system needs a radical update, and it does appear able to do so. Meanwhile, it is difficult to foresee how a world based on nationalism and xenophobia – with a strong increase in military spending worldwide, and many other global problems from climate change to no policy for migration, and a global debt that has reached 225 percent of GNP in ten years – will be able to live without conflicts,

What we do know is that the world which emerged from the Second World War, based on the idea of peace and development, the world which is in our constitutions, will disappear.

Democracy, can be a perfect tool for the legitimacy of a dictator. This is what is happening in the various Russias, Turkeys, Hungarys or Polands. A strongman wins the elections, then starts to make changes to the constitution in order to have more power. The next step is to place cronies in institutional positions, reduce the independence of the judiciary, control the media, and so on. That is then followed by acting in name of the majority, against minorities.

This is not new in history. Hitler and Mussolini were at first elected, and today many “men of providence” are lining up.

]]>http://www.ipsnews.net/2018/06/trump-stay-change-world/feed/0Warnings of a New Global Financial Crisishttp://www.ipsnews.net/2018/06/warnings-new-global-financial-crisis/?utm_source=rss&utm_medium=rss&utm_campaign=warnings-new-global-financial-crisis http://www.ipsnews.net/2018/06/warnings-new-global-financial-crisis/#respondMon, 11 Jun 2018 13:37:05 +0000Martin Khorhttp://www.ipsnews.net/?p=156146Martin Khor is Executive Director of the South Centre, a think tank for developing countries, based in Geneva

There are increasing warnings of an imminent new financial crisis, not only from the billionaire investor George Soros, but also from eminent economists associated with the Bank of International Settlements, the bank of central banks.

The warnings come at a moment when there are signs of international capital flowing out of some emerging economies, including Turkey, Argentina and Indonesia.

Some economists have been warning that the boom-bust cycle in capital flows to developing countries will cause disruption, when there is a turn from boom to bust.

All it needs is a trigger, which may then snowball as investors in herd-like manner head for the exit door. Their behaviour is akin to a self- fulfilling prophecy: if enough speculative investors think this is the time to move back to the global financial capitals, then the exodus will happen, as it did in previous “bust” phases of the cycle.

Soros recently told a seminar in Paris: “The strength of the dollar is already precipitating a flight from emerging-market currencies. We may be heading for another major financial crisis. The economic stimulus of a Marshall Plan for Africa and other parts of the developing world should kick in just at the right time.”

Martin Khor

If Soros is right about an imminent crisis, its trigger could come from another European crisis. Or it could be outflow of funds from several developing countries. Some had received huge inflows when returns were low or even zero in the rich countries. With US interest rates and bond prices going up, the reverse flow is now taking place and it is only the start with more expected to take place.

Soros’ prediction may not be widely shared. “Honestly I think that’s ridiculous,” said the head of investment bank Morgan Stanley commenting on Soros.

The Soros warning reminded me of a South Centre debate held in Geneva in April, when we hosted two eminent main speakers to launch their book, “Revolution Required: The Ticking Bombs of the G7 Model.”

The authors were Peter Dittus, former Secretary General of the Bank of International Settlements (BIS), and Herve Hamoun, the former Deputy General Manager of BIS. The BIS is a club of 60 central banks, known as the bank for central banks.

You can’t get a more respected conservative establishment than the BIS, also famous for the quality of its research.

Yet the two recently retired top BIS leaders wrote a book in simple direct language warning of “ticking time bombs” in the global financial system waiting to explode because of the reckless and wrong policies of the major developed countries. Nothing short of a revolution in policy is required, to minimise the damage of a crisis that is about to come, they say.

At the Geneva meeting, Dittus and Hannoun pointed to several problems or “time bombs” that had developed in the developed countries, with potential to harm the world.

The main problem is what they call the G7 debt-driven growth model. The major countries, except Germany, have lax fiscal policies with high government liabilities as percent of GDP. In particular the United States has an irresponsible fiscal policy which it has exported to other G7 countries, except Germany.

The unprecedented asset price bubble engineered by G7 central banks is a ticking time bomb that is ready to burst, after seven years of near zero interest rates and speculative excesses in bonds, stocks and real estate. The Federal Reserve has dealt with the bursting of every asset bubble of the last 20 years by creating another, larger bubble.

The US administration has expanded new expenditure and tax cuts by over a trillion dollars, with no funding other than more debt. This “reckless behaviour”, leading to a US fiscal deficit projected to be around 1 trillion USD in 2019, was made possible by the permissive monetary policy conducted by the Fed since 2009, the silence or complacency of the big three US based ratings agencies, and the IMF’s blessing.

The G7 central banks have also become the facilitators of unfettered debt accumulation, according to the authors. The near zero or negative nominal interest rates are a huge incentive to borrow and extreme monetary policies have destroyed any incentive to fiscal rectitude.

G7 total debt in 3rd quarter 2017 was around USD 100 trillion. Together the US, the UK, Canada, Japan and the Eurozone account for 64% of the world total debt.

The authors assert the G7 extreme monetary policies since 2012 have undermined the foundations of the market economy.

There are now centrally planned financial markets and the break up of key elements of the market economy model.

Long term interest rates are manipulated, valuations of all asset classes are deeply distorted, sovereign risk in advanced economies is deliberately mispriced, and all these do not reflect fundamentals.

They warn that the unprecedented asset price bubble engineered by G7 central banks is a ticking time bomb that is ready to burst, after seven years of near zero interest rates and speculative excesses in bonds, stocks and real estate. The Federal Reserve has dealt with the bursting of every asset bubble of the last 20 years by creating another, larger bubble.

They also warn that the quantitative easing policy of recent years may shift to a worse policy of government debt monetisation.

Although central banks have made it very clear that large scale government bond purchases are a temporary measure taken for monetary policy reasons, they are slipping into a different concept – that of a permanent intervention of central banks in government bond markets.

This is seen as a way to solve the sovereign debt crisis in major advanced economies, by transferring a growing part of government debt to the central bank: 43 per cent of G7 government bonds in major reserve currencies are now held by central banks and other public entities

G7 central banks are at risk of heading towards the slippery slope which ultimately leads to government debt monetization.

They are facing a dilemma, the authors point out. They have to choose between highly risky scenarios: policy normalisation or government debt monetization?

For the time being, the Fed and the Bank of Canada are leaning towards normalization, albeit at a slow pace, while the ECB and the Bank of Japan are dangerously heading towards a continuation in a way or another of the debt monetization experiment.

Here is the dilemma: G7 central bank’ policy normalisation is the only option consistent with their mandate and with a return to the rules of a market economy. But when G7 Central Banks eventually exit from their unconventional policies, they will contribute to the bursting of the asset price bubbles engendered by their monetary experiment.

This could well be the worst financial crisis ever experienced, as the level of debt and the artificial level of asset prices have no precedent.

But an even worse systemic crisis would result from the continuation of current unconventional policies leading central banks to cross the rubicon of government debt monetisation. The perpetuation of these policies, with their zero or negative interest rate policy and large-scale purchases of government debt, would encourage fiscal deficits and the continued expansion of public debt.

Public debt monetisation, through the transfer of always more government bonds on G7 central banks balance sheets, would destroy the market economy as it would pave the way for an unlimited expansion of the public sector, say the authors.

The above shows why the former BIS officials believe a new financial crisis is brewing. Changing the recent policy will lead to an explosion, but continuing with the same policy while buying time will lead to an even bigger crisis.

Their analysis of the crisis in the G7 countries matches that of Yilmaz Akyuz, the South Centre’s Chief Economist and author of the book, Playing With Fire.

Akyuz goes further, in analysing the impact a global crisis will have on developing countries. Since the 2009 global crisis, the developing countries have built up new and increased vulnerabilities to global financial shocks.

Their financial sector has established even more and deeper links to international financial markets, shown for example by high percentage of the ownership of foreign funds and investors in the domestic stock markets and in government bonds of developing countries.

Therefore if there is a significant or big outflow of these foreign funds, the some economies may suffer from loss of foreign reserves, currency depreciation, higher external debt servicing, higher import prices, falling prices of houses and equities and in worse cases an external debt crisis. A few developing countries are already facing crisis and seeking IMF bail-outs.

Many developing countries still have strong economic fundamentals. But in many cases, their economies are weakening in one way or other, and the worsening global economic prospects (including the real possibility of a trade war) do not augur well. The conditions for an external-debt problem have increased.

It would thus be wise for them to monitor and analyse what is happening globally, as these will significantly affect the economy. Scenarios should be established on what may happen externally, including the onset of a new global crisis, how this may affect the economy in various ways, and to prepare for various measures that can be taken. Crisis prevention and crisis aversion should now be a priority.

Dealing with the domestic economic issues should go together with preparations to cope with changing external situations. Though we may not be able to control what happens abroad, we can take measures to respond appropriately.